Building resilience: How to thrive through a recession
The impact of COVID-19 and the prospect of a prolonged recession may be daunting for SMEs, but there are steps you can take to navigate this new environment and emerge even stronger.
The last significant recession was the economic crash 12 years ago, and many SMEs have never experienced a serious downturn. But, while the impact of coronavirus has already been a shock to the system, and the resultant recession may be a scary prospect, it’s not all bad news – and there’s lots you can do to not only survive, but thrive!
Stuart Lawson, KPMG’s former Chief Restructuring Officer, used to help some of the country’s biggest businesses overcome difficult periods. Now he does the same for SMEs – he currently works for as a Business Growth Advisor for Elephants Child. St. James’s Place recently asked him for advice on navigating a recession – here are his top three tips:
1. Count your cash
Managing your cash should be your starting point, which means forecasting three months ahead and checking back and updating that forecast every fortnight, so that you’re clear about your sources and uses of cash.
Consider different ways you could be affected by the recession, and be cautious when assessing how your customers and market might react. When forecasting forward, make sure that you have no hidden tax bills or VAT liabilities that will be difficult to manage. Also assess whether you can strengthen your balance sheet with an equity raise or refinancing of existing debt at better rates.
You should also consider other sources of cash, such as debtors and stock, says Lawson:
“I’ve talked to one company with a debtor book running out to 200 days. They’ve been very supportive of their customers, who haven’t really been paying regularly or to terms. Focus on turning overdue debtors into cash, manage customers to terms and make sure you aren’t over-exposed to one major debtor.”
2. Plan a strategic response
Once you have a clear view of your cash, you can begin to think seriously about your strategic response to the recession, so you can still deliver for customers. Take the time to review your strategy, identify whether it’s still fit for purpose. If it’s not, work with your people to set a new path.
It can be a time of opportunity for businesses to embrace the ‘new normal’, refocus their energies and resources and set new priorities.
“Take the opportunity to pivot or change your business model. We have seen many examples of businesses doing just that recently, such as restaurants that have successfully developed takeaway services or dine-at-home packs. This is a chance to rapidly introduce new products and services or to re-engineer old ones for the new commercial environment.
“Continue to focus on growth and strategic intent. There may be cheaper M&A opportunities during a recession and you can improve your chances of thriving if you act aggressively to capture market share during a downturn, rather than waiting for the recovery to begin. Acting with purpose and speed may also mean more aggressive restructuring and changes to your product and trading portfolio – right-sizing for the future.”
But it’s not all about grabbing new opportunities with both hands. Don’t underestimate the value of nurturing loyal customers by focusing on support and added value. If you help your best customers now, they’ll be in a position to reward you when the economy recovers. This is also the time to review your supply chain and bring a renewed focus to managing margins by renegotiating key supplier relationships and contracts.
3. Show leadership
It’s something no boss wants to do, but during a recession there may be a need to look at staffing levels. But even if you identify changes, it’s important to maintain productivity and keep morale by keeping your team on-side. Lawson adds:
“You’ve got to make sure you keep the right skills to maintain performance. You can’t have any performance drift and that comes down to the leadership role. You’ve got to create an environment where there’s some positivity and certainty because you don’t want people coming to work suddenly feeling like there’s no point.
“So, you’ve got to maintain the alignment and motivation of the teams even in difficult circumstances. A business leader is responsible for four things: strategy; tactics, leadership and followership. The leader of a small business sets the strategy. You are also providing leadership and making sure that everybody in the organisation knows where the company is going, what it’s doing and what’s expected of them.
“You also need to create an environment where everybody feels that everybody has an equivalent level of challenge. And the last thing is this notion of followership. So, the employees have got to believe that you know what you are doing and where you are going.”
Time to thrive
Navigating a business through such difficult times is not something most SME leaders will have experienced, but when you come out the other side you should be more resilient, more agile and better able to meet the challenges of the years ahead. Successful businesses will adapt to the ‘new normal’ and will use it as a catalyst for growth and evolution.
Where the opinions of third parties are offered, these may not necessarily reflect those of St. James’s Place or Wellesley Wealth Advisory.